Moody's downgrades Manitoba's debt ratings to negative

Moody's Investors Service today changed the outlook for the Manitoba's debt ratings to negative from stable due to the risk of the Selinger government’s plan to bring the province’s books back into the black by 2016-17.

The change in outlook was posted on the Moody’s website earlier today and the immediate impact is that it’ll cost the province more to borrow money, Finance Minister Jennifer Howard said, adding the province remains committed to balance by budget by 2016-17. The summary deficit is forecasted to shrink to $357 million, down from an estimated shortfall of $432 million for the 2013-14 fiscal year.

Howard said Moody’s downgrading means less than a half a per cent increase to the province’s debt-serving costs.

"For me it means a renewed focus on things like efficient spending and good use of taxpayer dollars," Howard said. "I think for most Manitoba families they aren’t going see a difference in how they live tomorrow versus yesterday because of this news.

"We’ve managed to bring down the cost of borrowing and if this increases it I think it can be accommodated within what we’ve planned to spend."

Moody’s said the change in the outlook to negative was prompted by its assessment of the risk surrounding the province’s plan to get to balance by 2016-17, and the risk of a continued increase in Manitoba's debt burden beyond 2016-17.

"Expenditure pressure and prospects for modest GDP growth will make it challenging for the province to achieve its target of a return to a modest surplus and stabilizing debt burden by 2016-17", Moody's lead analyst for Manitoba Kathrin Heitmann said in the release.

Moody’s also said Manitoba's deficits are small as a percentage of revenues.

However, it added the government’s bid to return to a small surplus by 2016-17 relies to a substantial degree on the province's ability to contain expenditure growth, a steep challenge because of spending pressures in healthcare and social services, which take up about 70 per cent of spending.

Howard said the province is still on track to manage those pressures.

"It is challenging," she said. "(But) we know that we live in a province where we can have massive changes because of flooding or forest fires or other things that happen, and no Manitobans expects us to say ‘No’ to fighting the flood or protecting their homes because we have a date that we want to balance the budget."

Moody’s also said from now to 2017-18 government revenues are forecasted to grow on average by 3.3 per cent per year, including the impact of stable federal transfers while expenditures are expected to grow by only 1.9 per cent during the same period.

The international credit-rating service also said Manitoba's debt burden is expected to reach about 150 per cent of revenues in 2016-17, versus 141 per cent expected for 2013-14 and 101 per cent recorded in 2008-09.

"This trend in debt metrics represents a risk to the province's creditworthiness and leaves limited headroom for substantial further deterioration beyond current expectations," Moody’s said.

At the same time Moody’s affirmed the province's Aa1 senior unsecured rating.

It said the Aa1 ratings reflects the diversity and stability of Manitoba's economy, which is expected to grow at a modest pace in line with the Canadian average in the next few years -- which produces low unemployment rates -- and the province's high degree of financial flexibility due to its access to a broad and stable tax base.

The agency said Manitoba’s rating could change if Moody’s sees a loss of fiscal discipline leading to a continued and sustained increase in debt,.

"The outlook could be stabilized if Manitoba's debt burden as a percentage of revenues stabilizes and the province remains on track to achieve a return to balanced budgets by 2016-17," it said.

In a statement the government said Manitoba’s Aa1 credit rating is 4th best among the provinces, and is two steps above what it was when the Opposition Progressive Conservatives left office in 1999.

The government also said the province’s debt-to-GDP ratio is below the level when the PCs left office in 1999 (32.9% in 1999 vs. 29.8% in 2014).

It added Moody’s made similar outlook adjustments for Ontario earlier this summer and for B.C. in late 2012.

"Today’s report is consistent with what Moody’s said earlier this summer about provinces in general," the province said. "On June 25, 2014, a Moody’s report stated that the overall fiscal outlook for Canadian provinces has turned more negative largely due to the slow pace of economic recovery."

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